What Is Renter’s Insurance and What Does It Cover?

renters insurance paper cutout family umbrellaPeople buy insurance because they expect the unexpected; for those who rent an apartment, that means getting renter’s insurance.  Unfortunately, most individuals who rent their homes neglect taking this step to protect themselves and their belongings from damage or theft. Many of them think that the landlord’s got it covered with their insurance policy or that renter’s insurance is either too expensive or not suitable for the value of the belongings that they own.

All of these misconceptions are false. Your landlord isn’t liable for anything beyond his or her property, so don’t expect their policy to cover your stuff in case it gets stolen or ruined in a fire. Renter’s insurance isn’t very costly, either.  Despite what you think about how much your stuff may or may not be worth, having suitable coverage to replace it all in the event of disaster will cost far less than paying out of pocket to buy everything new all over again.

It’s also important to know that renter’s insurance covers more than just your belongings. These policies also cover your liability in the event something happens in your unit that might a visitor or neighbor in another unit. If you flood your bathroom by mistake and that water seeps through and ruins some items in the apartment below, renter’s insurance can cover that. If someone enters your home and injures him or herself, you could be liable for any major medical costs associated with that injury. Renter’s insurance can cover that as well.

Of course, like any insurance policy, there are some restrictions and limitations as to what may be covered and excluded (renter’s insurance will not cover damage or loss from floods or earthquakes), so be sure you know exactly what your specific policy will protect. Before you head off to get some quotes, let’s go over all of the basics that you should be aware of first.

In the Event of an Emergency

Renter’s insurance covers you and your belongings in the event something should happen to them. Although not all policies offer the same coverage, almost all of them will protect you from loss or damage inflicted from a list of standard “perils” that might occur. These include fire or lightning, theft, vandalism, windstorms and hail, explosion, smoke, riots or civil unrest, damage caused by aircraft, damage caused by someone else’s vehicle, volcanic eruption, falling objects, weight of snow or ice, short-circuit damage from electrical appliances, freezing of plumbing, heating, or air-conditioning systems, water leakage from pipes, and damage from steam-heaters or water heaters.

Sounds like a pretty comprehensive and exhaustive list, doesn’t it?  However, there are still a few scenarios out there that renter’s insurance will not cover. Land and mudslides, earthquakes, floods, nuclear hazards, loss in time of war, and government seizure of property are just some of the perils that aren’t covered.

For some of these, floods and earthquakes in particular, you will need to buy separate coverage. If you live in a coastal area that is often prone to hurricane activity, you will likely be required to take out additional coverage to protect yourself in the event of hurricane-inflicted damage, too.

Personal Property Coverage

Look around you. How many things do you see? How much did you pay for these things? Add them all up and it might be more than you think.

Every room in your home has something of value and, in the event of an emergency, you may not be able to recover all of your belongings on your own. If your apartment or rental home is engulfed in flames, chances are you’re not going to be lugging that big screen TV out the door as you run for your life. You’re going to save the things that are most precious and valuable, like pets and loved ones, before you start grabbing material items of value.

Keeping current renter’s insurance can help you replace lost items through personal property coverage. The question then becomes how much coverage do you need? The answer is different for every policyholder since it all depends on how much you have to protect and what these items are worth (in terms of replacement costs, not sentimental value). Some renter’s may think their possessions aren’t valuable enough to warrant insurance coverage, but when they start to sit down and itemize the worth of everything in their home, they’re often surprised by the real dollar amount.

So if you’re considering taking out this type of coverage, then start to take some inventory of all the things you would want replaced in case they were stolen or destroyed. Nothing is too small or inconsequential, be sure to include everything beyond the so-called big-ticket items like electronics and furniture. Clothing, silverware, books, Blu-ray discs, and anything you use each and every day should all be inventoried when coming up with a dollar amount for how much coverage you need.

Determining these limits before you start looking for quotes will help provide you with a more accurate picture of what it will cost per month to adequately cover everything of value in your home. But also keep in mind that the more items and more overall value that you include in the policy, the more expensive your premiums will become. So while you’re inventorying all of the items in your home, you also want to be cognizant of what you really need insurance to cover and what you think you can replace on your own or do without. Renters who have expensive art on their walls are going to need a much different policy than a recent college grad who has moved into his or her first apartment.

Replacement Cost vs. Actual Cash Value

When determining the type and amount of personal property coverage to purchase, there are two policy types you can choose from: Replacement Cost coverage and Actual Cash Value coverage. They’re both pretty self-explanatory and refer to the reimbursements you would be eligible to receive in the event of an emergency. The type you select will also affect the cost of that policy.

The less expensive of the two types of coverage is Actual Cash Value which means that your reimbursements for any lost items would only be equal to the current cash value of those items at the time of their loss. For example, if you bought a stereo for $750 seven years ago, the insurance company would assess what that unit is worth today through depreciation based on how long you’ve owned it and the potentially outdated nature of that type of electronic component. Chances are, if you wanted to sell that stereo to someone right now you would get a fraction of the cost and you might be get around $200 for it. With an Actual Cash Value policy, the insurance company would reimburse you that $200 instead of the $750 you originally paid almost a decade ago.

However, with a Replacement Cost policy the insurance company will reimburse you the full retail cost of the item so that you may go out and purchase a brand new item of comparable value. You would receive the full $750 you paid for that stereo so you may buy a new one just like it. Of course, this policy is going to cost you much more to purchase since the potential pay out is much greater.

Deciding on which of these policies is best for you really comes down to the type of items you want to cover. If you have a lot of new and expensive stuff in your home, then you may want their full retail value in return, but if you own a lot of older items that you may have bought second-hand, then it makes sense to save some money on an Actual Cash Value policy.

Liability Coveragereduce risk two dice

Renter’s insurance can cover more than just your possessions, it can also cover you in the event you’re found liable for damage or injury to other people and/or property. Purchasing liability coverage can help protect you from having to pay for any repair or medical bills out of pocket in case you find yourself legally responsible for having to cover such costs.

For example, if someone visits your home and falls down the stairs or gets injured in some significant way and you are found to be at fault, then renter’s insurance can cover the bills you’re be expected to pay for after the fact. Going back to the example used earlier about your bathroom being flooded and the water seeping through the ceiling of the unit below, if there is major water damage to any of that renter’s belongings then you may be deemed liable and your renter’s insurance could cover those costs as well. If you are sued by someone who has been injured in your home, then your insurance can also cover your legal costs to defend yourself in court.

Be sure you know the limitations and restrictions that are inherent to the size of your policy with respect to liability and take out any additional coverage you may think necessary. Most renter’s insurance policies come standard with liability, but it’s good to know what those limits are in your policy.

Policy Limits

Every insurance policy has its limits. It’s up to you make sure you’re properly covered for everything that you own, otherwise you may find yourself getting reimbursed for only a portion of what you expected when you bought the policy. These limits are determined by the size of coverage you purchased and anything beyond those limits might require additional riders or extended coverage. Most policies can be customized for the policyholder; however, the insurance companies also offer some standard options with limits of coverage on certain items.

The majority of insurance companies will only cover the loss of things like jewelry, passports, watches, fur coats, securities and stamps or other collectibles up to $1,500. Items such as firearms, silverware, flatware, or gold are usually capped at a dollar amount of $2,500. If you keep cash in your home, be careful how much you stash away because most policies will only cover up to $200 worth in the event of loss. For most renters, this may not be enough coverage and additional riders will need to be purchased to cover anything more than these limited amounts. Neglecting to maintain the proper rider for these items could very well result in the loss of value beyond your policy’s coverage limit.

Emergency Living Expenses

Purchasing renter’s insurance covers you beyond protecting you or your belongings in the event of the perils stated above. A comprehensive rental policy can also help pay for any living expenses that are incurred if the rental property which you call home becomes uninhabitable due to one of the peril definitions stated by the company. If the rental unit is badly damaged by fire or smoke or any other reason that is covered by your policy, then your renter’s insurance will pay your living expenses until you are back in your home.

These costs include hotel bills, food bills, and many other expenditures that you wouldn’t normally need to spend if you weren’t without a home at that moment in time. Like all other aspects of your policy, these costs may be capped up to a certain amount and you should review them before something happens instead of being surprised at how little money you’ll receive when at the time you really need it.

Frequent Travel Insurance

Some companies offer renter’s insurance policies that can cover the loss of your belongings while you are traveling. This can come in quite handy for frequent travelers who spend a lot of their time in airports or on the road when mistakes can happen and luggage and other valuables can get lost or stolen. Airline companies are only liable for losing your possessions up to a certain amount of the replacement value, but in most cases this really isn’t sufficient. Keeping renter’s insurance can help defray the difference in the costs of reimbursement.

The Price of Your Policy

Since every policyholder has different needs, the cost of a policy can fluctuate greatly from one individual to the next and it is determined based on a number of factors that go beyond necessary coverage for personal belongings.

The cost of a policy can also change drastically based on what region of the country someone lives in. The state of Mississippi has some of the highest premiums in the United States while some of the lowest costs are found in North and South Dakota. If you live in an area prone to certain weather conditions that could inflict damage more readily, that could drive the price of your coverage even higher.

Conversely, the fewer items and lower the cost to replace those items will make the price of your coverage drop. The average dollar amount of coverage can range from as low as $25,000 to as high as $45,000 for most renters. Those numbers reflect policies that cover standard items that most of us own without any luxurious possessions such as expensive jewelry, antiques, artwork, and the like. If you do own these pricey items, then you’re likely going to want more coverage to adequately account for the loss of these things. For those of you who are self-employed or work from home, some items that you rely on for an income might need special additional coverage as well, even if those things might normally be covered already.

unaffordable un crossed outSaving Money

There are other factors that are also considered by the insurance company in determining the price of your policy. Do you own a dog? If you do, then you may be subject to higher renter’s insurance premiums based on the breed you own. Do you know the crime rate in your neighborhood? That is also factored into the equation.

You may also want to think about the amount of your deductible when pricing out a policy. The deductible is how much you need to pay out of pocket before your coverage kicks in, and the higher a deductible you have on your policy, the less expensive your monthly premiums will be. Knowing where the insurance companies will factor in a higher rate can help in determining how much coverage you ultimately need and want to pay for in the long run. Some of these factors you just can’t avoid since you’re not going to necessarily move because your neighborhood has been deemed to have a higher crime rate by your insurance provider.

Therefore, it’s important to find additional ways to save some extra cash through discounts. The insurance companies offer a number of them and they can all help reduce your monthly premiums. Homes equipped with preventive safety measures such as smoke, fire, and CO2 detectors, in addition to home security alarms that signal break-ins, will qualify for renter’s insurance discounts. Paying your bill in full at each renewal period instead of monthly installments can also yield some discounts on your premium costs. Policyholders can save additional money through bundling their renter’s insurance with the same company as their car insurance.

Selecting the right insurance company is almost as important as selecting the right policy as different companies offer different discounts. Everything from going paperless to improving your credit score can yield a lower cost for renter’s insurance while still maintaining the quality and extent of coverage necessary for keeping all of your stuff safe from harm.

Filing a Claim

So you’ve bought a renter’s insurance policy and have adequate coverage in case of emergency. But don’t stop there. You still need to do some homework to make sure you get everything you’re expecting from that coverage in the event something does happen and you need to file a claim. The best way to protect yourself is by keeping a carefully itemized and accurate inventory of everything you own in the insured residence. You will have likely done something like this in determining the type of policy you wanted to purchase in the first place, but in case you weren’t exactly accurate in accounting for every last thing, now is the time to create an inventory list.

Be specific. Write down the name, the value and the serial number, where applicable, of each item. Take a photograph as well and/or carefully videotape every room in your home, documenting each item and where it is located. Make sure you take every area of the home into account, including closets, storage areas, the garage, and anywhere else you have belongings of worth and value that you will claim on your insurance in the event they are lost, stolen, or damaged. Keep receipts if you have them, as well.

This documentation will prove highly beneficial when submitting a claim to your insurance company. Just be sure you keep all of it in a safe location so it won’t be affected by whatever peril has forced you to make a claim on these items in the first place. Storing them at the office, a safe deposit box, or anywhere you can access these things easily, makes a whole lot more sense than keeping them in your home.

Our Final Thoughts

Your landlord is not responsible for anything you bring into the property and won’t help you if your stuff is damaged or destroyed in case of a burst pipe or a fire in the building so it’s up to you to keep your belongings safe. Renter’s insurance is something every person who rents an apartment, condominium, or home should consider to protect their valuables and limit personal liability in case of accident or emergency. The costs for this coverage can be adjusted to fit just about any size budget and the premiums made manageable based on the type of coverage purchased.

Renter’s insurance is a small price to pay to prevent losing the things you hold dear, especially those expensive items that you may not be in a financial position to purchase again if something were to happen to any of them. Most companies can offer coverage for as little as $20-30 a month. But you won’t know until you start getting some quotes, so do it today. You never know what tomorrow may bring.

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